CFD vs Turbo – differences and similarities

CFD vs Turbo – differences and similarities

The range of investment products is growing bigger and bigger each year. Besides the traditional investment products such as stocks, mutual funds, options and bonds, investors are becoming more and more familiar with CFDs, Turbos, futures and binary options. There is something for everyone nowadays. In this article we compare the CFD and the Turbo where we will look at the similarities and differences between the two products.

The similarities between CFDs and Turbos

Leverage

In both CFDs and Turbos you trade with leverage, allowing you to obtain high yields with a little capital. Both products allow traders to speculate both on market growth and decline.

Expiration

In contrast to options and futures, Turbos and (most) CFD’s don’t have an expiration date. Some CFDs are derived from futures and therefore do have an expiration date.

Financing costs

Finally, as a trader you pay, either directly or indirectly, financing costs if you hold a CFD or Turbo position. For CFD’s financing fees will be charged daily and for Turbos financing fees are settled indirectly by increasing the funding level. The financing rate is currently quite low for both products.

The differences between CFDs and Turbos

Built-in stoploss

Turbos have built-in stoploss which ensures that the position is automatically closed once a predetermined price level is reached. The shorter the built-in stop-loss, the higher the lever. Turbos on shares or other underlying markets often have different stop-loss levels. It is up to the investor to make the right choice between the desired lever on the one hand and the desired stop loss level on the other. CFDs do not have a built-in stoploss, but investors can set a stop-loss order themselves and decide where it will be placed. CFDs are more flexible in that perspective, because CFD traders can determine very accurately where the stop should be placed, while Turbo traders are subject to stop-loss levels that are determined by the broker.

Offer

Much more CFDs are offered than Turbos. Many CFD providers offer more than 10,000 different CFDs, while RBS offers about 2,500 Turbos. In addition, CFDs, unlike Turbos, are not listed making them tradable even outside of regular trading hours. CFDs have essentially the same price as their underlying asset, while the price of Turbos depends on the level of funding.

Spread

The spread (the difference between the bid and ask price) on CFDs is usually a lot lower than on Turbos. Especially active traders who do a lot of transactions benefit from the smallest possible spread. The spread on CFDs can however be a little wider outside of regular trading hours or before important macroeconomic news for example.

Transaction Fees

Another major advantage of CFDs over Turbos is that some CFD brokers do not charge transaction fees for opening and closing positions on indices, currencies, stocks and commodities. Plus500 for example does not charge any transaction fees.

Risk management

When trading CFDs risk management is more important than when trading Turbos. With Turbos, you cannot lose more than you deposit, while with some CFD brokers this is possible (although with some CFD brokers, like Plus500, you also cannot lose more than you deposit). That’s why it is important to use stop-loss orders when trading CFDs to limit losses when the market is going in the wrong direction. If you want to be absolutely sure that you don’t lose more than you deposit, some brokers offer the possibility of a guaranteed stoploss. The spread is made slightly wider in that case.

CFD vs Turbo – The winner is …

Tastes vary, but in most areas CFDs are simply better than Turbos. There is more choice in CFDs, they provide more flexibility in determining the stop loss and can often be traded outside of regular trading hours. Besides, they usually have lower spreads on many CFDs no transaction fees are charged.